The Best Energy Stocks to Buy According to Industry Insiders

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It is no secret to investors that energy stocks lagged the market in 2012 – but now in 2013 some are becoming the best stocks to buy as they head for huge gains.

The Energy Select Sector SPDR ETF (NYSE: XLE) has gained about 6.5% over the past year, below the 8% gain in the Dow Jones Industrial Average and the 11.5% rise in the Standard & Poor's 500 Index.

But just looking at 2013, you'll see XLE has risen 8.7%, compared to the Dow's 6% gains and the S&P's 5.13%.

And money is pouring into this sector from a key group of investors: corporate insiders.

As far back as 1968 legendary speculator Victor Niederhoffer and his mentor Professor James Lorie discovered that cluster buying of stock by corporate insiders offered substantial excess returns over the market. When three or more officers and directors of a company break out their checkbooks to buy their own stock there is a good chance that the stock price is headed higher.

This anomaly had been confirmed many times by academics and investors over the year and still holds true today.

The other metric with tracking when it comes to corporate insiders is buying by those two executive officers who are in the best position to evaluate the company's conditions and prospects – the chief executive officer and chief financial officer. If they are buying more shares in the open market chances are high they think the shares are cheap and good things are about to happen.

Best Stocks to Buy Now: What Energy Insiders Like

We are starting to see a substantial amount of insider activity in a few oil production and energy services names, like the following:

Key Energy Services Inc. (NYSE: KEG), for example, saw a cluster of buying in November 2012 with five different officers and directors scooping up shares. The company provides well maintenance and well completion services to major oil companies all over the globe. It also plugs and decommissions wells when they have reached the end of their useful life, as well as other well services.

While U.S. operations have felt the pressure of lower natural gas prices, the company has substantial growth opportunities in Latin American and Russian operations. This was a $20 stock in 2011 and the people running the company seem to think it will recover much of that ground over the next few years.

Five insiders, including CFO Elijio V. Serrano, have also been buying oil services company TETRA Technologies Inc. (NYSE: TTI). The six-month change in TETRA ownership by insiders has been a share gain of nearly 90%.

Tetra operates across three different divisions with exposure to almost all segments of the energy industry. The fluids division provides brines and fluids used in the drilling process.

TETRA offers testing and well-enhancement services in key drilling basins around the world and they also have an offshore division offering well services to the offshore drillers. As part of their offshore operation they also have an exploration and production company focused on shallow water drilling in the United States with a focus on the Gulf of Mexico.

In addition to the five buys at the end of 2012, the CEO of the company purchased $165,000 in shares to increase his stake in the company back in May 2012.

TETRA is trading around $8.50 now, with its one-year price target 27% higher at $10.86.

The largest single recent by one of the top energy executives was made by John Juneau, the CEO of Contango Oil & Gas Co. (NYSE: MCF). At the end of October 2012 he spent more than $2.2 million to invest in shares of his company as the price fell with the energy sector.

The company focuses its drilling operations on the Gulf of Mexico region and is considered to be one of the lowest cost producers in the industry. If natural gas prices do rise in the next year this driller will see profits and the stock price explode as they are primarily in the natural gas business.

For a closer look at why energy companies are among the stocks to buy in 2013, check out this report by Money Morning Global Energy Strategist Dr. Kent Moors on this latest "Buy" signal in the energy industry.

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